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October 3, 2013

Cerulli: Institutional Market to Grow to $19 Trillion in 5 Years

30% rise fueled by DB to DC migration, research firm says

A new report from Cerulli Associates projects the U.S. institutional market will increase 30% to $19 trillion in assets within the next five years.

The Boston-based research firm defines the institutional market based on the identity of the end client, classifying assets as institutional only when the asset manager’s end client is an institution.

“As of year-end 2012, the institutional market held $14.5 trillion in assets under management,” Michele Guiditta, associate director at Cerulli, said in a statement. “And, with more than $4 trillion in assets, private defined contribution remains the largest U.S. institutional market.”

“The shift from defined benefit to defined contribution is continuing,” added John Hsu, senior analyst at Cerulli. “DC markets continue to grow faster than DB markets and we anticipate that to continue.”

The report, titled “Institutional Markets 2013: Gaining Market Share as Shifting Portfolio Construction Presents New Opportunities and Challenges,” also finds that due to risk parameters in the institutional market, traditional asset managers should expand their capabilities in alternatives to continue to grow assets under management, as the firm expects the sourcing of larger alternative allocations from traditional equity and fixed income.

Asset managers should also continue to improve their risk measurement and performance attribution capabilities, it notes, in order to satisfy the growing reporting needs from consultants and the institutions they serve.

It also notes the opportunity for asset managers who have shifted their focus to DC to leverage existing relationships with corporate DB plan sponsors, allowing them to win DC mandates and potentially extend to custom target-date solutions.